European Union: How The UK Government's "No Deal Brexit" Planning Impacts Cross-Border Restructuring And Insolvency In The UK

English law restructuring and insolvency tools are used to
implement financial restructurings and the external administration
of foreign companies. The attractiveness of the English tools and
legal system is highlighted by the prevalence of companies
incorporated abroad, especially companies incorporated in the EU,
which avail themselves of those tools. English law in this area is
impacted by much European law. While there remains uncertainty
surrounding the nature of any Brexit deal, the UK Government has
issued a technical notice1 outlining its proposed
legislative response if there is no deal. In this note we highlight
the likely implications on each of the established English
restructuring and insolvency tools.

The Summary Impact of the 'No Deal' Technical
Notice

The no deal technical notice, if implemented, would remove the
automatic reciprocal effect and simple enforcement procedures that
exist between UK and EU restructuring and insolvency procedures.
However, the availability and desirability of the UK as a
restructuring hub for foreign companies would, in our view, remain
largely unchanged. In summary, our view is that the no deal
technical notice will have the following principal impacts on
English restructuring and insolvency tools:

Schemes of arrangement of foreign companies including
EU companies will continue, and we expect those compromising
English law-governed debt will be largely unaffected.

Administration and Company Voluntary Arrangements
("CVAs") will continue to be available for foreign
companies, including EU companies, but potential conflicts with
local laws for all foreign companies will need to be managed, which
is a change only in respect of EU companies.

Administration and Liquidation as terminal
proceedings will continue to be available for foreign companies,
but will need to be coordinated with dissolution measures in the
company's home jurisdiction.

Restructuring of UK-incorporated companies will of
course continue, but new enforcement issues may need to be
addressed if the restructuring needs to be enforced in an EU member
state.

This alert is relevant to lenders, borrowers, shareholders and
any other stakeholders of companies that are contemplating or may
contemplate restructuring in the UK.

Changes to the Existing Legal Framework if There Is No
Deal

Despite the expectation created by the importing of European law
into English law by the Withdrawal Act2, the no
deal technical notice indicates that:

the whole of the EU Judgments Regulation; and

the majority of the EU Insolvency Regulation,

would be repealed. Given these EU regulations make provision for
reciprocal arrangements between the EU and the UK, we expect that a
Minister of the Crown may effect the repeal by way of regulation
under s. 8(1) of the Withdrawal Act. Our expectation is
that the EU would reciprocate and remove references to British
restructuring and insolvency tools from the Insolvency
Regulation.

Schemes of Arrangement Will Continue, With Some Tweaks

In summary: When used by foreign companies, schemes of
arrangement are mostly used to compromise financial indebtedness
governed by English law. In some cases, schemes are used to
compromise financial indebtedness governed by New York (or other)
law. In our view, the implementation of the no deal technical
notice should have limited substantive impact to the availability
of the scheme of arrangement to compromise financial indebtedness
governed by English law. For financial indebtedness owed by EU
companies governed by other law, the position becomes less certain
and would require case-by-case analysis.

In detail: When an English court is moved to sanction a
scheme of arrangement, the English court must be satisfied that the
scheme, if sanctioned, will have substantive effect. Where a
foreign company has proposed the scheme of arrangement, it is
customary to provide expert evidence that the scheme will, if
sanctioned, be recognised and enforced in the foreign company's
home jurisdiction. Where there is significant doubt about the
position, then the foreign company will usually propose an
equivalent procedure in its home jurisdiction (often a scheme of
arrangement if the home jurisdiction provides for such procedure)
the effect of which is conditional on the English scheme of
arrangement being sanctioned.

The change that a no deal Brexit may bring about to schemes
arises from an argument run in many recent cases that the scheme of
arrangement, once sanctioned by the English court, is subject to
mandatory recognition and enforcement across EU Member States under
the Recast Judgments Regulation.3 As we note above, the
no deal technical notice presages the repeal of the Recast
Judgments Regulation in the event there is no Brexit deal. To
determine whether this will impact on the availability of schemes
of arrangement for companies incorporated in EU Member States, the
question that arises is whether, and in what circumstances, a
scheme will be recognised in the EU Member State without relying on
the Recast Judgments Regulation?

The reason for consternation on this issue is that the position
at present is thought to be consistent across the EU Member States
in all of those where the Recast Judgments Regulation applies. Once
the UK leaves the EU, however, UK judgments will no longer attract
automatic recognition and enforcement across EU Member States under
the Recast Judgments Regulation. The matter will then fall to be
determined according to the private international law of the
jurisdiction of the company proposing the scheme of arrangement. As
there is no uniform private international law among EU Member
States, it is conceivable, therefore, that the outcome in, by way
of random example, Greece may differ from the outcome in
Croatia.

In our view, however, we think there is less cause for concern
than other commentators. This is because of a number of discussions
we have had with lawyers across various European jurisdictions and
the ongoing effect of the Rome I Regulation. The Rome I
Regulation4 is an EU regulation that governs the choice
of law in contracts. Its principal effect is to provide freedom of
choice (Article 3) when parties incur contractual obligations. The
Rome I Regulation further provides that the scope of the applicable
law shall govern "the various ways of extinguishing
obligations" (Article 12 1. (d)). An English scheme of
arrangement that compromises obligations under finance documents
governed by English law would seem to be extinguishing contractual
obligations. In principle, therefore, English schemes of
arrangement should continue to be given effect in EU Member States
as a result of the Rome I Regulation.

The Rome I Regulation will seemingly continue to apply in all EU
Member States after Brexit. While there is some room for courts in
Member States to take differing views of the effect of the Rome I
Regulation, lawyers across many EU Member States see much force in
this. The prevalence of English law in finance documents suggests,
therefore, that schemes of arrangement will continue for companies
incorporated in EU Member States for some time yet.

However, that is not to say that the no deal technical notice
would not bring about significant change to negotiating
restructurings in Europe. Discussions surrounding plan B, C, etc.
implementation routes may be significantly changed, as we note
below.

A Backward Step for Recognition and Enforcement of Insolvency
Proceedings

At present, the Recast European Insolvency Regulation
("EIR") provides a regime for the automatic recognition
and enforcement of insolvency (and many restructuring) proceedings
within EU Member States (excluding Denmark): the insolvency
proceeding of a company commenced in an EIR Court in either its
home jurisdiction, or that jurisdiction where it has its centre of
main interests ("COMI"), is automatically recognised
throughout EU member states (excluding Denmark).

There are many examples of companies incorporated in EU member
states shifting their COMI to the UK to benefit from the reciprocal
automatic recognition that arises for administration, CVAs and
liquidation. This permits those companies to avail themselves of
pre-packaged administrations (pre-packs) and CVAs to implement
financial restructurings.

If the EIR is repealed in the UK, then we expect reciprocal
action to be taken in the EU. This will mean that:

UK courts will no longer automatically recognise and enforce EU
Member State insolvency proceedings; and

Is This the End for the Use of UK Insolvency Proceedings for EU
Member State Companies?

As a matter of law, each EIR Court would be free to apply its
own law to determine whether to recognise UK insolvency
proceedings. So there may well be different results in different
jurisdictions.

Some EU Member States (including the UK, Greece and Poland) have
adopted the UNICTRAL Model Law on Cross-Border Insolvency. That
text provides an avenue for the recognition of insolvency
proceedings including through the application of the COMI principle
(which the UK will continue to apply for the opening of insolvency
proceedings going forwards). However, the majority of EU Member
States have not. In those jurisdictions, therefore, detailed
analysis will be required to determine whether and to what
extent:

the UK proceedings will be adequately recognised and enforced;
or

the extent to which parallel local proceedings may need to be
used within the EU Member State.

And What of the Recognition of EU Member State Insolvency
Proceedings in the UK?

EU Member State insolvency proceedings would immediately become
foreign proceedings. As there are no EU Member States designated
for special assistance under section 426 of the Insolvency Act, the
sole statutory avenue for recognition of foreign insolvency
proceedings will be the UNCITRAL Model Law on Cross-Border
Insolvency as enacted in the UK in the Cross-Border Insolvency
Regulations 2006.

There is a sound body of law concerning the recognition of
foreign proceedings under the Cross-Border Insolvency Regulations.
Recognition imports an automatic stay on proceedings against the
insolvent company within the UK. There is also the option to apply
for discretionary relief, which is the likely path to be followed
if a foreign insolvency plan is to be recognised and enforced in
the UK. However, on this there is much less case law.

In Summary, Where Would the Implementation of the 'No
Deal' Technical Notice Put Us?

On a less certain footing. Many of the existing paths used to
achieve cross-border restructurings involve automatic recognition
and enforcement. With those paths changed, or removed altogether,
the UK restructuring and insolvency landscape for European
companies will certainly become less certain and, seemingly, less
predictable. In that eventuality, there will be further analysis
required from lawyers on every restructuring, especially from
within Europe, to negotiate and implement restructurings in the
UK.

MoFo Brexit Taskforce

The process of Brexit will take many years, and the implications
for our clients' businesses will unfold over time. Our MoFo
Brexit Task Force is coordinating Brexit-related legal analysis
across all of our offices and working with clients on key concerns
and issues, now and in the coming weeks and months. We will also
continue to provide MoFo Brexit Briefings on a range of key issues.
We are here to support you in any and every way that we can.

3 REGULATION (EU) No 1215/2012 of the European Parliament
and of the Council of 12 December 2012 on jurisdiction and the
recognition and enforcement of judgments in civil and commercial
matters (recast)

4 Regulation (EC) No 593/2008 of the European Parliament
and of the Council of 17 June 2008 on the law applicable to
contractual obligations

Because of the generality of this update, the information
provided herein may not be applicable in all situations and should
not be acted upon without specific legal advice based on particular
situations.

Mr Justice Hildyard, who continues to amass expertise on schemes of arrangements, recently ruled against convening a single meeting of creditors on a scheme of arrangement proposed by Stronghold Insurance Company Limited (Stronghold) (the Scheme).

Witnesses can, in various circumstances, be subpoenaed by the Courts of overseas jurisdictions to attend to give evidence by way of depositions within that jurisdiction. So why not take that one step further and ask a foreign court to subpoena the witness to give evidence by live satellite video link to a Court in London? This would be the next best thing to having the witness present in Court. Indeed, the Commercial Court is increasingly amenable to evidence being given in this way (albeit on a

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